Parmalat's founder told his successor of financial 'hole'

Bloomberg Business News

Published 6:30 am, Wednesday, December 31, 2003

Parmalat
founder
Calisto Tanzi
, who's in jail and under investigation for fraud, had a simple message when he met the dairy company's new chief executive,
Enrico Bondi
: "Go and check out everything."

Tanzi's comments are detailed in court documents explaining a decision by a Milan magistrate to keep the 65-year-old executive in the San Vittore jail. Tanzi told Bondi in what the documents describe as a "brief meeting" that he would find a "hole" of about 8 billion euros, or $10 billion, in Parmalat's accounts. He didn't tell him where to find the missing cash.

Parmalat, which sells milk products, desserts and fruit juices in 30 countries, was declared insolvent Saturday by a Parma court. The collapse, Italy's largest bankruptcy, is described by magistrates in the documents as one of the "biggest financial holes ever" in Italian finance.

"These are very serious allegations," said Giancarlo Cerza, vice president of investments at Wachovia Securities in Los Angeles, which doesn't own Parmalat securities. "They still have to work out what happened to these funds."

Tanzi is under investigation for crimes that include fraudulent bankruptcy, misappropriation of funds and market manipulation. He hasn't been indicted. Tanzi said he didn't tell Bondi "about specific mechanisms used to cover up" the losses, according to the court documents, which were obtained by Bloomberg News. Bondi, a turnaround expert, was brought in to restructure the company Dec. 15.

Tanzi, whom magistrates accuse of siphoning off 800 million euros of Parmalat's money, said he was aware of "adjustments" to the balance sheet to cover up losses, according to the documents.

Tanzi said that from 1998, the balance sheet of the maker of long-life milk, Archway cookies and Pomi pasta sauce had been altered to cover up losses in Latin America, according to the court papers. In the past year, the company's financial woes were caused mainly by the slump of the Brazilian and Argentine currencies, according to the documents.

One of Parmalat's former lawyers was cited in the documents as saying the cover-up may have been going on as long as 15 years.